CBN seeks to cement FX gains with new policy framework

The Central Bank of Nigeria (CBN) is moving to consolidate recent gains in the foreign exchange market with plans to introduce a new policy framework, including an FX manual designed to expand market participation, tighten documentation standards, enhance surveillance, and ensure consistent implementation of reforms.

The proposed FX manual will strengthen oversight of the electronic foreign exchange matching system (EFEMS) while eliminating the risk of policy reversals that previously undermined market confidence. Details of the plan were contained in a document from the CBN seen by BusinessDay.

The document, titled The Central Banking Awards 2026, was authored by Christopher Jeffery, Daniel Hinge, Daniel Blackburn, Joasia Popowicz, Levente Koroes, Thomas Chow, Jono Thomson, Riley Steward and Blake Evans-Pritchard.

The apex bank has also intensified efforts to develop a functional, transparent, and liquid fixed-income market, seen as critical for effective monetary policy transmission and the mobilisation of long-term domestic savings. In collaboration with the Securities and Exchange Commission and the National Pension Commission, the CBN has established rules to transition the over-the-counter secondary market into a more transparent and robust regulatory framework aimed at better serving investors and market participants.

“These reforms are foundational steps towards ensuring that Nigeria’s financial markets can support deeper investment, accurate pricing and stronger monetary policy transmission,” Olayemi Cardoso, governor of the CBN said in December last year.

According to the document, a major pillar of the reform agenda has been the overhaul of the FX market. The Central Bank transitioned to a willing-buyer, willing-seller framework, replacing the multiple-window regime with a more transparent and market-driven system.

Cardoso’s team introduced the electronic foreign exchange matching system (EFEMS), powered by Bloomberg BMatch, transforming FX trading through mandatory order submission, real-time regulatory visibility, and improved price discovery. The CBN also launched the Nigerian Foreign Exchange Code to promote ethical conduct among market participants.

Crucially, the Central Bank cleared what Cardoso described as a “once crippling” backlog of FX obligations across key sectors such as aviation and manufacturing, helping to restore credibility and boost business confidence.

The reforms have reduced opacity and curtailed manipulation, restoring discipline to the market. “The naira now trades within a narrow, stable range. The once-substantial gap between the official and parallel markets has shrunk to under 2 percent, down from over 60 percent,” Cardoso said in December 2025. “We are committed to maintaining the current flexible exchange-rate framework that allows the naira to act as a shock absorber while limiting excessive volatility.”

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Improved market functioning, stronger non-oil exports, and robust capital inflows have supported a steady rebuilding of Nigeria’s FX reserves without reliance on borrowing. Gross reserves rose to 46.7 billion dollars by mid-November 2025, the highest level in nearly seven years, providing more than 10 months of import cover, while net reserves are reported to be at a three-year high.

The International Monetary Fund (IMF), in its July 2025 Article IV assessment, noted that directors welcomed steps taken by the authorities to rebuild reserves, support market confidence, and enhance liquidity and price discovery in the FX market.

Tackling inflation has also remained a central focus of the CBN’s policy stance as it returns to orthodox monetary policy. The bank raised interest rates sharply from 18.75 percent in 2023 to 27.5 percent by November 2024. As a result of tight monetary conditions and complementary measures, inflation has declined significantly from more than 32 percent in December 2024 to 16.05 percent in October 2025, and further to 15.10 percent by January 2026, with food inflation easing to 8.9 percent.

The moderation in inflation and expectations created room for cautious easing. The CBN reduced its policy rate by 50 basis points to 27 percent in September 2025, its first rate cut since 2020 and again by 50 basis points in February 2026 to 26.5 percent. This calibrated approach reflects efforts to safeguard macroeconomic stability while gradually lowering borrowing costs.

Cardoso has reiterated the bank’s “determination to bring inflation down further,” noting that the current double-digit rate remains unacceptable. The CBN is working with the IMF and the Bank of England to support a transition from monetary aggregate targeting to an inflation-targeting framework.

“Our transition to an inflation-targeting framework is gaining traction. We have improved data analytics, strengthened communication, and ended monetary financing of fiscal deficits. These actions have strengthened monetary policy transmission and anchored expectations,” Cardoso said in December.

The CBN’s models project continued disinflation in 2026, supported by stronger domestic production, improved FX liquidity, and more disciplined liquidity management. The bank maintains that monetary policy will remain evidence-based, data-driven, and unwavering in its pursuit of price stability.

The apex bank also emphasised improved coordination between monetary and fiscal authorities, noting closer collaboration with the Financial Services Regulation Coordinating Committee to ensure that monetary policy actions are aligned and do not operate in isolation.

Hope Moses-Ashike

Hope Moses-Ashike is an Associate Editor, Banking and Finance, with more than a decade of experience reporting on Nigeria’s financial system and broader economy. She closely tracks market movements, monetary policy decisions, company disclosures, regulatory actions, economic indicators, and global developments, and interprets what they mean for businesses, investors, policymakers, and households. Her reporting helps readers understand complex issues such as inflation trends, foreign exchange market dynamics, interest rate decisions, bank performance, and investment risks. She also covers major international events and periodically travels to Washington, D.C., to report on the World Bank/IMF Spring and Annual Meetings. Her dedication to financial journalism has earned her multiple recognitions and invitations to high-level professional development programmes. She is an alumna of the International Visitors Leadership Programme (IVLP) in the United States and holds an Advanced Financial Journalism Certificate from the Press Association Training in London, UK. Her other notable achievements include completing the Lagos Business School CMC Programme, the Bloomberg Media Africa Initiative Programme, and a Master Class in Journalism at Rhodes University in South Africa.